Swords into Plowshares

The phrase beating swords into plowshares can be found in a biblical passage referencing the transition from war to peace. It is a fitting admonition for the reverse mortgage industry as we prepare for what we hope will be the finishing touches on the restructuring of the Home Equity Conversion Mortgage program. In other words now is the time for us to cease fighting change and prepare for the future.

reverse mortgage news, financial assessmentUnpleasant realities:

Reality can be an unpleasant wakeup call and economic realities often are harsher. There was notable resistance and confusion as HUD took numerous measures to shore up the economic weak points of the HECM. Principal limit reductions, insurance premium increases and first year utilization restrictions, all which in retrospect foreshadowed a fully underwritten loan. FHA’s mutual mortgage insurance fund suffered substantial damage due to the housing collapse undermining the foundational assumptions upon which the HECM program was built. The broken bones may have been set and casted but the limp remains as we step forward. Time does heal all wounds yet it will be several years before we see the economic valuation of the HECM portion of the MMI fund fully recover. Until then we live with the reality of the financial assessment.

Making the crooked paths straight:

Navigating the fact-finding and underwriting minutiae of the financial assessment will pale in comparison to the importance of forging a new path in reaching potential borrowers. There is a large contingent of our industry who have worked in the reverse mortgage space for several years who still view the HECM as a social program. In other words, some see our mission to help all seniors regardless of their financial assets, ability to pay or future liabilities. Unfortunately this social justice view of the reverse mortgage is not financially viable and will lead such individuals down a very treacherous road of frustration and unmet expectations. To truly position ourselves for success we must begin to look away from the easy needs-based sale to those who may not see the immediate need but would benefit from using the HECM as part of their overall retirement strategy.

Finding a middle ground

It may be tempting to believe that only those with substantial savings and higher home values will qualify in the wake of the assessment. In fact, nothing could be further from the truth. Those with a history of poor credit management, late property charge payments and a persistent lack of cash flow will be the cohort most effected. Which brings us to the average middle-class homeowner. With senior home equity reaching new heights there remains a viable, qualified and motivated market who may have modest means but sufficient equity making them eligible. Even those on a fixed income of social security could easily meet assessment guidelines if not saddled by other debts or a history of poor money management. Then there’s the ‘mass affluent’: those with investible assets between $100,000 and $1 million dollars. Those with substantial retirement savings are often at risk of outliving their money; if  you’re doubtful just ask your local financial professional.

Next steps:

Now is the time for us to collectively put down our swords and equip ourselves for the remaining opportunity ahead. Certainly we will find fewer needs-based borrowers desperate for a HECM that qualify to easily pluck off the tree of older homeowners but there is a field that still needs to be worked to reach what has largely remained untouched ground.

Download a transcript of this blog post here.

Looking for more reverse mortgage news, commentary and technology? Visit ReverseFocus.com today.

Shannon Hicks serves as the president of Reverse Focus, Inc supporting the training and technology needs of reverse mortgage (HECM) professionals nationwide. Comments can be made in this post or sent directly to Shannon@ReverseFocus.com

 

1 comment

The_Cynic March 31, 2015 at 10:03 am

Although I do not agree with all of the points, it is clear that we have those among us who cannot reconcile the changes HUD made to the program with their view of the purpose of the program. They wax on and on about how the program was designed to specifically help a group of seniors with whom they sympathize or dwell on an aging in place agenda. They are so full of these mythical foundations of the HECM program that there is no longer any room for fact or truth. They are right and it does not matter if they have no evidence for what they promote because they have seen the vision.

Have you ever had anyone give you the HECM vision lecture? I have many times. These lecturers refuse to present HECMs as an annually subsidized program paying all operating and administrative costs. They falsely call the HECM self-sustaining, thus perpetuating a stupid and ignorant myth. They also fail to discuss the $1.7 million subsidy HUD took from the Treasury to cover projected cash shortages to reimburse lender note losses and certain assignment costs.

It is time we stop being irresponsible salespeople and deal with the product as it is. While we should not initiate these facts,neither should we cover them up with deflections, misdirections, and flat out lies when we are asked if the HECM program is subsidized. I hate the fact that I was brainwashed early in my career to believe that the HECM program is self-sustaining. I wish I would have stuck to my guns and asked for evidence. Instead for a number of years, I blindly spread this lie.

HECMs do what they were intended to do and will continue doing so even after financial assessment. However, unlike the author, there is no way that once financial assessment starts, it will stop.

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